Demystifying Brexit, construction, infrastructure and energy

The story thus far

In the celebrated decision of HP Bulmer Ltd v J Bollinger SA [1974] Ch 401 (CA) at 418F, Lord Denning MR most memorably described European law as “an incoming tide. It flows into the estuaries and up the rivers. It cannot be held back”. That process began when the UK joined the European Union (or the European Communities as it then was) on 1 January 1973. Forty-four years on, the EU’s legal competence and socio-economic sphere of influence have expanded significantly, and there is scarcely an area of law not affected by elements of the EU Treaties, regulations and directives, whether directly or obliquely.

In the wake of the EU Referendum on 23 June 2016, in which the UK voted to leave the EU (Brexit) by a majority of 51.9% to 48.1%, the UK Government formally triggered Article 50 on 29 March 2017 and commenced the two-year negotiation process for Brexit. Unless the 27 other EU member states agree to extend the deadline, the UK will officially leave the EU on 29 March 2019, the exact ramifications of which will depend on (i) internationally, the deal agreed (or not agreed) between the UK and the EU and/or individual countries by that date, and (ii) domestically, the terms and structure of the so-called “Great Repeal Bill”.

Legal challenges posed by Brexit

It is obvious that the Government and the UK as a whole face numerous legal and constitutional challenges. In particular, assuming that the Government carries through with the proposal for a “Hard Brexit”, the UK would have to brace for the impact of withdrawal from the single market and potentially significant changes in law once EU law currently applicable in the UK has been undone, once the Great Repeal Bill receives Parliamentary imprimatur and the European Communities Act 1972 (which has served as the “conduit pipe” for EU law to become domestic law) is no more.

“Upon the United Kingdom’s withdrawal from the European Union, EU law will cease to be a source of domestic law for the future (even if the Great Repeal Bill provides that some legal rules derived from it should remain in force or continue to apply to accrued rights and liabilities), decisions of the Court of Justice will (again depending on the precise terms of the Great Repeal Bill) be of no more than persuasive authority… Even those legal rules derived from EU law and transposed into UK law by domestic legislation will have a different status. They will no longer be paramount, but will be open to domestic repeal or amendment in ways that may be inconsistent with EU law.”

In these times of uncertainty and flux, it is all the more important that businesses and their legal advisers are aware of the various issues at stake and the legal implications, in order to properly manage their risks and take active steps to minimise any adverse impact of Brexit on their projects and transactions. That much is common ground.

Issues for the construction, infrastructure and energy industries

The construction, infrastructure and energy industries are by no means exempt from the implications of Brexit, with (amongst other things) long-term projects, cross-border transactions, numerous stakeholders, dependence on accurate and informed risk assessments, high-value developments and investments, funding and cashflow challenges, significant demands on domestic and EU labour resources, and proclivity to complex and costly disputes.

The challenges posed by Brexit are, moreover, amplified by existing problems within the industry, in the light of Mark Farmer’s October 2016 report which called for the construction industry to “modernise or die”. As practitioners in construction law, infrastructure, oil and gas and international arbitration, we can already anticipate the various potential hurdles ahead. The “Building a Better Brexit” campaign has already launched a manifesto in response, which provides a helpful starting point for constructive dialogue between the Government and the industry.

Objective of this Brexit Bulletin

This Brexit Bulletin will aim to demystify the issues arising from Brexit, and contribute to the debates by providing updates and food for thought from a legal perspective on issues and events which may affect construction law, infrastructure, energy and international arbitration. It is hoped that this will provide a useful point of reference or “hub” for employers, contractors, construction professionals, and legal practitioners alike, assisting stakeholders to manage their own risks and identify new opportunities as events and negotiations unfold.

Brexit Bulletin – the Bulletin itself brings together short articles and news updates written by members of Atkin Chambers, commenting on the key legal issues and latest developments in connection with the Brexit negotiations. Over the coming weeks and months, we hope to cover the following topics:

Continuing viability of the EU project.

Likely model for Brexit e.g. Hard vs. Soft Brexit.

Future of legal services and legal cost in post-Brexit UK/EU.

Jurisdictional issues in domestic and international dispute resolution.

Impact on international arbitration in the UK.

Drafting considerations for building and engineering contracts.

Managing delays due to Brexit, and claims and disputes which may arise.

Managing the risks of currency and interest rate fluctuations through contractual mechanisms.

Labour requirements and the free movement of EU tradespeople and construction professionals.

Project costs and timeframe and the free movement of EU construction materials and services.

Potential changes in public procurement law and EU funding.

Potential changes in environmental/planning law.

Potential changes in other construction-related regulations based on EU law e.g. CDM Regulations and Energy Performance of Buildings Regulations.

The numerous issues at stake all boil down to one unifying theme – the “known unknowns” and/or “unknown unknowns” (as Donald Rumsfeld would probably put it). The more we can collectively demystify the issues and implications posed by Brexit, the more prepared the industry and its advisers will be as we sail through the potential tempest ahead. We hope this Bulletin will achieve this objective, and above all, we hope the industry can join us in making this a successful, common enterprise.

Mathias Cheung

Mathias’ practice covers all areas of Chambers’ work, including construction, engineering and infrastructure, energy and utilities, information technology, and professional negligence. In addition to these specialist areas, he has gained experience in a wide range of commercial disputes, including cases on fraud, insurance, assignment, subrogation, and conflicts of law. Mathias is also the winner of the SCL Hudson Prize 2015 for his essay entitled ‘Shylock’s Construction Law: the Brave New Life of Liquidated Damages?’.

As a native of Hong Kong, Mathias is fluent in both Cantonese and Mandarin, and he is therefore able to take instructions for cases involving Chinese-speaking parties and Chinese documentation in Hong Kong, Mainland China, Singapore and other jurisdictions.